As the ISA turns 25, we look at why they’re back in the spotlight.

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Let’s get nostalgic. It's 1999. The Matrix has just hit cinema screens, Cher’s ‘Believe’ is a permanent fixture on every radio station, and there are whispers about something called the millennium bug, a software glitch which could, we’re told, result in planes dropping out of the sky. 

It’s also the dawn of the Individual Savings Account (ISA), a financial innovation that will change the way we save and invest forever. Fast forward to 2024, and ISAs are once again making waves – and shrewd savers would do well to sit up and take note.

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A conflict of interest

And why, for many, ISAs are the answer

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ISAs are a ticket to tax-free wealth-building and, ultimately, financial freedom. This has always been the case, but it’s especially true during periods when interest rates are high. And that has a lot to do with something called the Personal Savings Allowance (PSA).

The PSA is a threshold of tax-free interest you can earn on your savings. For basic rate taxpayers, the limit is £1,000, while higher earners have an allowance of £500. If your interest earnings exceed these limits — something which becomes more likely when interest rates are high — you’ll likely be subject to taxation. Unless, of course, your money’s stashed in an ISA.

With an ISA, all eligible interest earned is tax-free – no exceptions. This means more of your money remains in your pocket, and it removes the hassle of additional tax reporting duties down the line. 

But what else do ISAs offer savers?

Here are five big reasons why ISAs are back on people’s wealth-building agendas, and why they’re going to be a big deal in 2024:

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1. Diverse wealth-building
   With a stock & shares ISA, savers can invest in various assets, including shares, funds, investment trusts and bonds. This degree of diversification means that savers can invest in a way designed to mitigate market volatility and fluctuations. There’s also the key benefit of these investments having tax-free growth potential. Always remember that with investing, your capital is at risk.
   
   
2. Future-proofed savings
   ISAs provide a tax-efficient environment that essentially shields a saver’s earnings. ISAs, at their heart, are a reliable way for savers to protect and preserve their money, and build wealth for the long term.
3. Easy to manage
   Opening and managing an ISA is straightforward. They require minimal paperwork and administrative hassle, especially when it’s with us. With a Chip Cash ISA, everything can be managed in-app; open an account, deposit, withdraw, and keep tabs on interest earned with just a few taps of your phone screen. It couldn’t be simpler.
4. Save yourself a job
   Having your money in an ISA means you won’t have to worry about reporting tax now or in the future, saving yourself time and potential stress.
5. Flexible (if you’ve got the right ISA)

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Unlike ISAs offered by some traditional lenders, the Chip Cash ISA allows users to withdraw funds without incurring any penalties, such as rate reductions. This gives savers the freedom to manage their finances in a way that suits them, so you can access your savings exactly when you need them. 

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More than meets the ISA

They’re not just a way to avoid paying tax‍

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At HMRC’s last count, UK savers have more than 22 million open ISA accounts between them. But, given current interest rates, that number’s likely much higher today.

ISAs have always been considered a core part of a smart wealth-building strategy, but they’re very much centre stage right now. 25 years on from their inception, ISAs continue to be valuable for anyone wanting to enhance their savings and investments, especially during periods marked by high interest rates. 

With their tax advantages, diversification opportunities, and ability to instil long-term savings discipline, ISAs have a central role in wealth-building and preservation, regardless of the market environment.

Here’s to the next 25 years of ISAs.

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‍Chip does not provide tax advice or financial advice. Tax treatment depends on individual circumstances and may be subject to change in the future.